What does nonprofit budgeting and forecasting have to do with “The Wizard of Oz?”
Let’s think back to the beginning of the movie, when Dorothy stumbles upon Professor Marvel, who conjures an image of Auntie Em in his crystal ball. Does he have mystical powers? I think not. A carefully adapted apparatus that provides insight and directs the subsequent actions of wayward Dorothy? Absolutely! If she had met the future dream state Wizard earlier in the day, maybe she would have made it to the shelter in time. While we’re glad she didn’t — as that would have negated one of the greatest movies of all time — in the shelter is where you need to be in real life.
And that’s especially true for nonprofit marketing and fundraising leaders. Being prepared and planning for the unexpected is how you ride out storms with confidence.
These days, I’m sure you’re feeling the sheer centrifugal forces swirling through your fundraising programs … a pandemic, supply chain issues, price increases, and more. You’re not alone. While nobody can fully predict the future, ensuring you have the right budgeting and forecasting tools to help you explore likely outcomes of your investment decisions is critical.
If you haven’t adapted your budgeting and forecasting tools to reflect today’s challenges, consider these key steps to help you better deliver accurate and contextual projections that you can present to leadership with confidence:
Use an Audience-Centric Approach:
While a critical part of the process, budgeting from a campaign-/effort-level up provides only part of the story. With so many channel interdependencies nowadays, you need an approach that cuts through the clutter. Budgeting and forecasting at the audience level do just that and will help avoid a scenario where multiple program owners are budgeting for the SAME ANTICIPATED DOLLARS! As much as we’d all like to magically make $1 turn into $2, that power goes beyond the capabilities of any forecasting system, and even the Wizard himself.
Define Your Audiences by Origin Channel Segments:
The value of this approach is two-fold. First, you’ll have meaningful, mutually exclusive segments that map to key marketing entry points. Through assessing performance trend data (which will inform, not dictate, future projections), you’ll gain clear insights into the strengths and weaknesses of each acquisition channel. This will help you understand what donor journey adaptations are necessary to drive longer-lasting relationships. Second, this methodology provides a strong framework for measuring Long-Term Value, which should be central to every investment decision. It’s great to understand what might happen next year, but what does this audience truly yield three or five years down the road? You need to be able to justify your investments through this lens.
Make Space for New Programs & Channels:
Not all marketing programs you’re considering will have full firsthand performance data to inform future forecasts. New channels are exciting and present huge opportunities, but they don’t exist in a vacuum either. It’s best to look beyond revenue and expense for these programs and incorporate detailed assumptions for donor counts, gift size, frequency of giving, and downstream retention, even if projected. This will help you weave these new programs in with existing programs and summarize whole program outcomes. Your forecasting system should allow you to do this without having to do backflips and roundoffs.
Account for External Influences:
COVID-19 served as the perfect reminder that our fundraising successes and challenges are inextricably linked to what is going on in the world. To what degree and for how long will health, financial, and political influences affect performance, be it positively or negatively? Those are big questions that fall outside the purview of owned performance data, yet there are resources that can help. Your forecasting tools should allow you to apply organizationally agreed upon assumptions from external data sources into your forecast and override performance data where appropriate. The right tools — like THD lens — will also enable you to proactively spot key trends that are affecting fundraising performance and anticipate those emerging trends in your forecasts.
Make Scenario Exploration Easy:
There are always trade-offs that need to be considered when it comes to planning your investments. Should I invest in Channel A or Channel B? More donors, but less revenue this year? Better ROI this year, but fewer donors left to drive long-term performance? You need to have a framework that allows you to explore these questions iteratively, as they will inform which scenario truly meets your objectives. And if it’s too complicated, you’re more likely to guess (or maybe worse yet, assume) what the right answer is. You don’t want the Scarecrow pointing in both directions as you come to a fork in the road. Even if your data structure is complicated with thousands of inputs, create an interface that simplifies scenario exploration. It will be worth the upfront time.
Don’t rely on the crystal ball, or the flying monkeys might sabotage your hard work
In my role as Vice President, Data Strategy here at THD, I’m constantly trying to find ways to make our clients’ lives easier when it comes to producing accurate forecasts. With advanced tools and a team of experienced analysts, it’s possible to be much more certain of the future.
Hopefully, your budgeting and forecasting leaves you feeling more like this:
If you think it might be time to “oil up” your forecasting tools and methodologies, drop me a note — I’d be happy to conduct a consultation with you about your forecasting needs.